Tuesday, June 9, 2009

Book review: The four pillars of investing by William Bernstein

The four pillars of investing: Lessons for building a winning portfolio – William Bernstein

Synopsis:This book explains how to build an effective portfolio in plain English. The book is split into four parts (pillars): Theory of investing, History of investing, Psychology of investing and the Business of investing. The book explains why an understanding of these four key areas is crucial to achieve good returns. Examples are given for different people and how they would allocate their capital to different assets and why.Many areas are discussed such as the history of bubbles and collapses, behavioural finance, the pitfalls of mutual funds and why your broker is not your buddy.

What I gained from reading this book:I can easily say that this is the best investment book I have read to date. This is a big statement because I have read many investment books during my time at university studying finance. If I had to choose between reading four finance books that I read during university or this book, I would read this book. There is so much insight and valuable wisdom.The great thing about this book is that you don’t have to be an experienced investor to follow these principles. The author clearly explains the process and why each point is important. So many other books fail to cover both aspects. The advice given in this book is top class and even top investors such as Warren Buffett recommend people do the same. Not only does this book explain why the advice is sensible, but it explains why the advice given by journalists, brokers and mutual funds shouldn’t be followed.The overall gain I received from this book was a clear understanding of the industry, the markets and exactly what I should do to achieve the best results.

Positives:Fantastic advice for all investors. The entire book is written in a very logical way and is very easy to understand. Important insight into the investment industry and why the advice given by brokers and advisors should be ignored.

Negatives:I wish this book was longer and more in depth.

Recommended for: EverybodyI whole heartedly recommend this book for everybody. Not only is it easy to understand, but everybody can follow the advice and construct an effective portfolio from it.